Let's look at another example of what seems like a puzzling phenomenon that can be explained with simple economics. Why does the price of turkey fall at Thanksgiving but the price of roses shoots up at Valentine's Day? About one in five turkeys consumed in the United States is eaten just at Thanksgiving, totaling about 750 million pounds. Valentine's Day makes of about a quarter of annual flower sales, with the majority of those being roses.
That's a huge temporary spike in demand in both cases. Yet the price per pound of turkey actually falls by about 10% in November compared to earlier months, while the price of a rose almost doubles in early and mid-February. So let's graph that, assuming a similar demand response for both products.
Here's a demand curve for turkeys. And here's one for roses. In both cases, there's an increase in demand around the holiday, and we can safely assume that demand also becomes less elastic, that is, less responsive to price.
It's hard to imagine Thanksgiving without turkey, and roses are traditional for Valentine's Day. So the new demand curve shifts out, because at every price people want to purchase more, and it also gets steeper, because people change their behavior less in response to a change in prices. I'm going to write that as D sub T prime and over here D sub R prime, demand for roses.
Now let's start with the market for turkeys and draw a supply curve with an equilibrium quantity and price for turkeys at other times of the year. We can see an equilibrium quantity of turkeys and an equilibrium price. If supply didn't change but demand shifted as it does in November, then the price of turkeys would go up to this point right here. But we know it goes down, so it must be true that the supply of turkeys increases. And in fact, it turns out that the supply of turkeys...
turkeys is very responsive to Thanksgiving because turkeys can be frozen and are throughout the year. In fact, by October there is usually well over half a billion pounds of turkey in wholesale freezers which are sold to stores in time for Thanksgiving. More quantity is available at every price. So if the price falls from P sub T to P sub T prime. way out here, we know that supply shifts out by enough to intersect the new demand curve at this point, S sub T prime.
We ended up way out here because we eat so much turkey for Thanksgiving. Supply increases relatively more than demand and the price falls. Now what about roses in February? The spike in demand for roses is just as predictable as the one for turkeys around Thanksgiving.
Why does the price of roses go up? You've probably already guessed the answer. Roses, unlike turkeys, can't be frozen and stored throughout the year.
And as I can attest, since I actually grow roses in my garden, February is not the best time for flowers in the US. What you grow right now is what you have and you don't necessarily want to divide the devote a lot of your land, resources, and labor to a one-time holiday unless the price is right. Imports from South America and Africa are brought in to meet demand.
Now let's assume that that exactly offsets the lower production from the United States due to the climate in February so the supply curve doesn't actually shift and just stays at this level here, supply of roses. But these suppliers are more costly due, for example, to transportation costs and the need to spin up production temporarily. Later in the course we'll discuss what kind of effect this would have on, say, labor markets, but for now we can see the equilibrium quantity increase from q sub r to q r prime And the price goes up by a lot from P sub r to P sub r prime. So why not substitute away from roses and even flowers in general? And certainly some people do because chocolates are great.
But, and we'll discuss this in a later module, an expensive gift like a beautiful bouquet of roses at the peak of their price can serve as a signal. I care so much about you that I'm willing to spend a lot of money on this attractive gift that will fade away in just a week. The overall explanation, though, is straightforward.
Turkeys are storable and roses aren't. The nature of the goods means that the supply response to a shift in demand is different. When you see a puzzle like this in the real world, take a step back and think about applying the principles you learned in this course.
It's not random or a conspiracy. There's an economics reason for why these things happen.